W. German States Ok $70 Billion Unity Fund

May 17, 1990|By Ray Moseley, Chicago Tribune.

WEST BERLIN — Leaders of West German states Wednesday approved a plan by Chancellor Helmut Kohl to invest $70 billion in East Germany to help prepare its battered economy for unification of the two countries.

In Bonn, the government also announced that the finance ministers of the two Germanys will sign a treaty Friday on monetary union to go into effect July 2.

Kohl and East German Prime Minister Lothar de Maiziere will make statements after the signing by Finance Ministers Theo Waigel of West Germany and Walter Romberg of East Germany.

The prime ministers of the German states, including several from the opposition Social Democrats, approved the $70 billion ``German Unity`` fund that Kohl proposed. The Social Democrats had complained recently that reunification would place a heavy burden on West German citizens and require a tax increase. The government denies that.

Johannes Rau, Social Democratic prime minister of North Rhine-Westphalia, said his party agreed to the fund because it ``limits the burden on our citizens to an acceptable level.``

Costs of the fund will be shared between the federal government and the states.

The fund is only a first step toward putting East Germany on its feet. Waigel said he plans to ask for another $1.85 billion to provide start-up help for pension and unemployment benefit schemes in East Germany, and West Germany`s economics minister, Helmut Haussmann, said Bonn would spend $4.3 billion on restructuring industry.

The East German government announced it wants to raise a $9 billion credit to keep its state budget solvent until monetary and economic union takes place. A Finance Ministry spokesman said the credit would cover the budget deficit in the first half of 1990.

The Berlin-based German Institute for Economic Research forecast Tuesday that the dislocations caused by East Germany`s shift to a market economy July 1 could put more than 1 million people out of work in the following 12 months. The institute estimates that unemployment benefits would cost $4.1 billion.

Unemployment in East Germany reached more than 100,000 in April, more than triple the March total.

East German Labor Minister Regine Hildebrandt said almost all East German firms would have to reduce their work force after monetary union.

``West Germany cannot live with such a collapsing and decaying part of Germany, with such a tumor, in its body,`` Hildebrandt said. ``So it has to invest and promote business.``

Economists expect a boom in East Germany after the initial shakedown period is over.

The treaty to be signed Friday will put control of East German economic affairs entirely in the hands of the Bundesbank, West Germany`s central bank. East German newspapers commented Wednesday that it in effect will mean the end of the East German state.

``We will still have a constitution, but in practice it will be virtually worthless,`` said the newspaper Junge Welt. `` . . . We will be effectively snuffing out our own existence.``

The treaty will pave the way for unification. Kohl and other West German leaders have begun signaling that they would like to see unification before the end of the year so that all-German elections can be held in December.

East German leaders favor a slower approach.

West Germany`s Economics Minister Haussmann, who meets Soviet officials in Moscow next Monday, said a united Germany would be in a unique position to help overcome the Soviet Union`s economic problems.

He said all those in the West who support Soviet President Mikhail Gorbachev ``must have a big stake in seeing a strong economic partner`` for the Soviet Union.

West Germany has promised to honor East Germany`s trade commitments to Moscow. The Soviet Union has been East Germany`s main trade partner.

West German businessmen have reported that the Soviets, unable to find enough hard currency to pay for imports, have delayed payments to West German exporters for the first time since the 1920s.